‘Never Let a Crisis Go to Waste’

I don’t find myself agreeing with Rahm Emanuel very much. However, he has a good point. Franklin Roosevelt used the Great Depression as an occasion to make permanent changes in the US economic system by creating programs and regulatory agencies that did not vanish when the depression ended.

When I read stories about the budgetary “crises” facing most state governments as well as the long-term debt problems of the federal government, I can’t help but see an opportunity here. Of course, there is the familiar cast of characters, now including Alan Greenspan, seeking to plug holes in the dyke by tax increases. These would have to be much, much higher to put a dent in state and federal fiscal troubles. Americans won’t, and should not, tolerate higher taxes.

Business cycle issues aside (most recessions end regardless of what the government does or doesn’t do), we ought to be focusing on the potential for real downsizing of government. Unfortunately, it will not come in an orderly and painless way. There are those preaching austerity – but not yet. Do they really believe that when times are good, governments will retrench?

The opportunity is here. At first, interest groups will prevent attempts to cut either “discretionary” or “entitlement” spending. And then the system will begin to crack with public pension defaults perhaps leading the way, followed by Medicare and Social Security. Soon all will benefit from cuts more than they lose.

It will not be a pretty sight. But it is the only way we are going to see a real retrenchment in the state. Many innocent people will suffer. But as a political culture we have mocked reality long enough. The ultimate fault does not lie in the crisis or failure to raise taxes but in the long period of acquiescence most Americans have displayed in the face of growing Leviathan.

Dr. Mario J. Rizzo is associate professor of economics and co-director of the Austrian Economics Program at New York University. He was also a fellow in law and economics at the University of Chicago and at Yale University.

Professor Rizzo's major fields of research has been law-and economics and ethics-and economics, as well as Austrian economics. He has been the director of at least fifteen major research conferences, the proceedings of which have often been published.

Professor Rizzo received his BA from Fordham University, and his MA and PhD from the University of Chicago.